Saturday, April 30, 2016

Being more like modern Sweden actually means deregulation, free trade, a national school voucher system, partially privatized pensions, no property tax, no inheritance tax, and much lower corporate taxes

See Bernie's Right—America Should Be More Like Sweden: But not in the way he thinks by Johan Norberg writing for Reason. Excerpts:
"when President Barack Obama visited Sweden in 2013, the three big Swedish trade unions sent him a letter requesting a meeting. Their agenda: a discussion of "how to promote free trade." The chairman of the largest Social Democratic trade union scolded the American president for his insufficient commitment to the free flow of goods."

"Being more like modern Sweden actually means deregulation, free trade, a national school voucher system, partially privatized pensions, no property tax, no inheritance tax, and much lower corporate taxes."

"Sweden and the other Scandinavian countries have experimented with very big government and semi-socialist ideas. There's just one problem: That experiment coincided almost perfectly with the region's only sustained period of economic decline over the last 100 years."

"the 1970s. Until that decade, Sweden and Denmark had grown much faster than other European countries and had become richer than most other countries on the planet, in large part by limiting government and embracing markets."

"During its laissez faire period, between 1850 and 1950, Swedish income per capita increased eightfold as the population doubled. Infant mortality fell from 15 to 2 percent, and life expectancy increased by a whopping 28 years. And all this happened before the welfare state was even a glint in the taxman's eye.

As late as 1950, total taxes as a percent of GDP in Denmark and Sweden were not just lower than in other European countries but lower than in the U.S.: 20 and 19 percent, respectively, vs. 24 percent in America.

It was at this point, when we Scandinavians had satisfied our thirst, that we thought that we could turn our backs to the well. We began to regulate. We increased taxes and beefed up the public sector. It's easy to see how foreigners observing the implementation of these unorthodox policies might confuse cause and effect. But those who think the semi-socialism made us rich would also probably look at a snapshot of Bill Gates and conclude that you become the world's wealthiest man by giving your money away."

"Sweden took democratic socialist policies further than its neighbors, and as a result its economy fell more steeply. Slowly but steadily the policies of Prime Ministers Tage Erlander and Olof Palme eroded productivity and the long-renowned Scandinavian work ethic. In 1970, Sweden was 25 percent richer than the OECD average. Twenty years later, the average had almost caught up with us. Once the fourth richest country on the planet, Sweden was now the fourteenth.

It was a disaster for entrepreneurship and employment. During this time, not a single job was created in the private sector (on net), despite a growing population. As of 2000, just one of the 50 biggest Swedish companies had been founded after 1970."

"As the Social Democratic finance minister Bosse Ringholm admitted in 2002: "If Sweden would have had the same growth rates as the OECD average since 1970, our common resources would have been so much bigger that it would be the equivalent of 20,000 SEK ($2,400) more per household per month."

During this brief Bolivarian turn, many Swedish intellectuals feared that their country would become an Orwellian nightmare. The Social Democrats toyed with an incredibly unpopular plan to socialize private businesses, and Parliament implemented a general rule saying that any economic transaction that had the intention of lowering one's taxes was illegal even if the transaction itself was legal. IKEA founder Ingvar Kamprad and many other entrepreneurs, plus all of our famous sports stars, fled the country.

Sweden's most famous author, Vilhelm Moberg, wrote that the government was out of control, and that we were turning into a third way between democracy and dictatorship "where everybody is discontented and disappointed." Our most famous film director, Ingmar Bergman, was snatched by the police at the Royal Theatre on charges of tax crimes (later dropped). He had a nervous breakdown and left the country."

"Kjell-Olof Feldt, the Social Democratic minister of finance from 1983 to 1990, admitted in a 1992 book that some of the government's program was "unsustainable," some of the policies "absurd," and the tax system "perverse." These policies also collapsed after a debt- and inflation-fuelled boom in the late 1980s.

Whatever these unsustainable and perverse policies did, they did not help the working people that Sanders claims to represent. Real wages in Sweden fell by around 5 percent between 1975 and 1995. Nominal wages increased, but runaway inflation devoured it."

"But in the early 1990s Sweden began to abandon its brief detour into Bernienomics. It deregulated, privatized, reduced taxes, and opened the public sector to private providers. The two decades that followed saw real wages increase by almost 70 percent."

"Between 1975 and 2005, Sweden improved its score on the Fraser Institute's Economic Freedom of the World Index by 2.3 points on a 10-point scale. Denmark's score went up by 1.7. This can be compared to Germany's 0.9 and the United States' 0.5"

"The legacy of Scandinavia's third way—its still-high public spending and high taxes, at least compared to the U.S.—has dwindled to fairly normal European levels. The governments provide the citizens with health care, child care, free colleges, and subsidized parental and medical leave. We Scandinavians have our quarrels with these systems and how they function, but at least they have not ruined our societies; indicators of living standards and health are impressive."

"Sweden and Denmark are more economically free than the United States when it comes to legal structure and property rights, sound money, free trade, business regulation, and credit market regulations. We don't have the multitude of occupational licensing laws that block competition in the United States."

"Sweden and Denmark take in lots of revenue via highly regressive value-added taxes at a normal rate of 25 percent of sales—the only tax where the rich and poor pay exactly the same amount in kronor. On the other hand, the corporate tax is just 22 and 23.5 percent respectively, compared to the U.S. rate of 35 percent.

In fact, rich people in Sweden enjoy several economic advantages not offered to their lower-class counterparts. Sweden always admitted very generous tax deductions for capital costs. Labor regulations are tailored to benefit big companies. To attract highly educated specialists from abroad, Sweden now has a beneficial "expert tax" for them, which shields 25 percent of their wages from taxation for a three-year period. "Sure, it is unfair, but we have no better solution," the Social Democratic minister of finance said in 2000, when he implemented special tax exemptions for individuals and families who owned a large share of a listed company.

Unlike Sanders, Scandinavian socialists have concluded that you can have a big government or you can make the rich pay for it all, but you can't do both."

"There is a cultural background that explains some of our success, going even further back than the laissez faire period in the late 19th and early 20th century, a culture of social trust, comparative lack of corruption, and a Lutheran work ethic. This may reflect a long history of internal stability, scant levels of feudalism, and a strong tradition of trading.

Two Scandinavian economists, Andreas Bergh and Christian Bjørnskov, have documented that a high degree of trust is an old legacy, and that descendants of those who emigrated from Scandinavia 100 years before the welfare state are also more trusting. Their conclusion is that trust in others and social cohesion creates the welfare state rather than the other way around, since it is more tempting to give power to politicians and money to strangers if you believe that they are decent people who would never cheat the system."

"The proportion of Swedes who say that it is never OK to accept benefits to which one is not entitled is still high, but has been reduced from 82 percent in the early 1980s to 55 percent now.

Some erosion of these attitudes could be seen in the early 2000s, when the number of Swedes on sick leave exploded. Even though we were objectively healthier than almost any other population, we were off sick more than anybody else. Often during large sporting events, coincidentally. During the Soccer World Cup in 2002, the number of men taking short-term sick leaves increased by 41 percent, whereas it did not change for women. God knows what would have happened had Sweden made it past the final eight.

In Sweden, we are experiencing these problems in the form of increased unemployment among immigrants. Now the employment gap between natives and foreign-born in Sweden is twice the European Union average, even though we express less racist and discriminatory attitudes than others. In response, Swedish politicians have recently decided to abandon liberal immigration policies and do whatever they can to scare people away.

It was easier to have a one-size-fits-all approach when we were all alike, from the same background, with the same faith and attitude and a similar education. We need a more flexible model now that we are becoming a little bit more like…well, the United States.

Gunnar and Alva Myrdal, the two leading Social Democratic thinkers of the 20th century, thought that the Scandinavian countries were uniquely suited for experimenting with high taxes and redistribution. They had homogenous populations with a strong work ethic, non-corrupt civil services, a high degree of trust in bureaucracies and politicians—and competitive free trade economies to foot the bill. If it did not work there, they suggested, it would be difficult to think it could work anywhere.
For now, the Swedish experiment in socialism continues along, in a much-altered form and buoyed by a healthy dose of economic liberalization. But attempting to transplant the Nordic 1970s model to the U.S. could have disastrous effects in a country with a less hospitable underlying culture. More government in the U.S. would not get you a big version of Sweden. It would get you a big version of the U.S. Postal Service."

Forget Denmark, Venezuela is the Real Culmination of Bernie’s Socialist Dreams

For the Vermont senator who favors press censorship and sees bread lines as evidence of success, the Bolivarian regime would seem to embody his ideals.

By J.D. Tuccille of Reason.
"Last September, Independent-Socialist-turned-Democratic presidential candidate Bernie Sanders got a bit pissy when supporters of Hillary Clinton tied him to Hugo Chavez, the late supreme leader of Venezuela. They "tried to link me to a dead communist dictator" his campaign complained of a super PAC mailing that pointed to Sanders working with Chavez in 2005 to bring oil subsidized by the Venezuelan government to Vermont as part of a mutual publicity ploy.

The harsh distancing may have been a step too far for lefty fans of the late Venezuelan strongman and his American comrade. A press release on the same incident preserved at refers instead to "the late Venezuelan leader Hugo Chavez."

Apparently all is forgiven. Last month Nicolas Maduro, Chavez's hand-picked successor, praised Sanders as "an emerging candidate with a renovating and revolutionary message."

And why not? In addition to oil deals, Sanders and the Bolivarian regime in Caracas have much in common. Venezuela has people waiting for hours to buy strictly rationed quantities of basic foodstuffs, and the Vermont senator loves him some bread lines.

"Sometimes American journalists talk about how bad a country is because people are lining up for food. That's a good thing," Sanders told interviewers in 1985. "In other countries people don't line up for food; the rich get the food and the poor starve to death."

Actually, it's a bit odd that Sanders would care what American journalists talk about, given the "democratic" socialist also tends to share the Venezuelan government's disdain for independent voices. Long before Chavez gained power in Caracas, Sanders expressed support for the suppression of dissent and censorship of the press implemented in his long-favored models of socialist Shangri-La: Cuba and Nicaragua. The Sandinista regime's restrictions on the independent newspaper La Prensa "makes sense to me" he commented at the time, even as he sparred with Vermont's Burlington Free Press over his Castro fanboy-ism.

For its part, Venezuela is rated "Not Free" by Freedom House, which points to concerns about the forced inclusion of pro-government messages in private media broadcasts, and a law that "bans content that could 'incite or promote hatred,' 'foment citizens' anxiety or alter public order,' 'disrespect authorities,' 'encourage assassinations,' or 'constitute war propaganda.'" Violators face heavy fines and closure, and the government works behind the scenes to force the sale of outlets to pro-government interests.

So, to hell with those journalists pointing to hours-long bread lines!

Or lines for anything else, for that matter. Like beer. Empresas Polar SA, Venezuela's largest brewer, is on the verge of closing its doors, since it can no longer gain access to necessary raw materials. Not that you could keep the stuff cold with electricity cut four hours every day in the oil-producing country.

One place that lines may be getting shorter is at the hospital—but not for good reasons. With a collapsing economy and worthless currency, the country can no longer afford to import the radioactive materials needed for many cancer treatments—which could possibly unify Venezuelans of all classes in the socialist solidarity of the grave. They'll have plenty of company, since medicine of all sorts is in short supply in the country.

Not that there are many people left to administer the medicine. The country guarantees a constitutional "right" to healthcare, but the system is crumbling. Over the past decade, an estimated 13,000 physicians fled the country in search of greener pastures. Cuba dispatched some of its own physicians to fill the gap, only to see them defect in turn. That's no shock, considering that the physician father of a Venezuelan friend of mine has been reduced to accepting payment in cooking oil and other groceries.

Seventeen years of Bolivarian socialism have arrived at the same point that state-directed economies always seem to arrive: severe shortages of goods, producers closing their doors (or peddling only to black market dealers) as mandated prices fail to cover costs, and growing state takeovers of industries as reality fails to keep pace with grandiose promises—or even to match the not-so-bad-in-retrospect conditions that prevailed before the socialists came to power.

Almost inevitably, the Venezuelan government has tried to close the gap with capital controls, "official" exchange rates that bear no resemblance to reality, and funny money that has become almost worthless. The International Monetary Fund expects inflation "to rise to 720 percent this year, from a world-high inflation of about 275 percent in 2015."

Probably the only thing holding the country together is the vestige of the free market, primarily in its illegal, black market form. Simply standing in the country's endless lines for an opportunity to make a purchase, for a fee, has become a business opportunity. Away from those lines, something to trade, or a handful of hard currency, can produce the coveted medicine, diapers, and food that the state's socialist policies have chased out of the normal market.

Maybe, just maybe, the black market can keep the country alive until the new opposition majority in Venezuela's Congress can wrest a measure of power from the president and his allies.

But is it fair to hold Sanders to his past approval of totalitarian socialist regimes and link him to the failures of the current crop of such governments? After all, the new favorite model for the "democratic socialist" is the Scandinavian welfare state, which requires a very elastic use of the word "socialist" or an awareness of current events that stops short at 1978. Scandinavians experimented with actual socialism decades ago, but realized that they liked to eat and keep the lights on. As Johan Norberg recently wrote for Reason, "Being more like modern Sweden actually means deregulation, free trade, a national school voucher system, partially privatized pensions, no property tax, no inheritance tax, and much lower corporate taxes." Yes, they have generous welfare states compared to the American version, but those rely on free economies to function—and they're shrinking under the pressure of economic reality.

If that's what Sanders really means today—assuming he fully understands the implications of what he's proposing—it sounds a lot better than what he's traditionally peddled.

But Sanders doesn't really seem to have given up his infatuation with authoritarian socialism. Even as Cuban officials prepared lists of dissidents to arrest in preparation for President Obama's visit, the Vermont senator hemmed and hawed at a Miami debate over whether the Castro regime's literacy program and healthcare system (those same doctors defecting through Venezuela) were offset by the lack of dissenting publications to read, long lines for sub-standard care, or the country's status as a tropical Alcatraz.

The Ladies in White group, consisting of the wives of political prisoners, were rounded up just before the president's plane landed—although they are regular involuntary guests of the state, as anybody keeping an eye on Cuba's political situation should know.

That may not have troubled Sanders very much, to be honest. Why would the arrest of a few embittered dissidents bother a politician who has a history of endorsing press censorship, and who sees long lines to purchase a few crumbs to eat as a sign of policy success?"

Friday, April 29, 2016

American aviation is suffering from a bureaucratic government-run ATC, while Canada’s privatized system is moving ahead with new technologies that reduce delays and congestion

See WSJ Reports on Canadian Air Traffic Control by Chris Edwards of Cato.
"In today’s Wall Street Journal, Scott McCartney reports on the superior air traffic control (ATC) system north of the border. American aviation is suffering from a bureaucratic government-run ATC, while Canada’s privatized system is moving ahead with new technologies that reduce delays and congestion. 
Showing leadership and boldness, House Transportation Committee chairman Bill Shuster managed to get reforms along Canadian lines passed out of his committee. Unfortunately, Senate Republicans have thus far been too timid to move ahead with restructuring. The flying public may have to wait until a reform-minded president can push an overhaul through Congress.
Here’s some of McCartney’s reporting:
Flying over the U.S.-Canadian border is like time travel for pilots. Going north to south, you leave a modern air-traffic control system run by a company and enter one run by the government struggling to catch up.
The model is Nav Canada, the world’s second-largest air-traffic control agency, after the U.S. Canada handles a huge volume of traffic between the U.S. and both Asia and Europe. Airlines praise its advanced technology that results in shorter and smoother flights with less fuel burn.
In Canada, pilots and controllers send text messages back and forth, reducing errors from misunderstood radio transmissions. Requests for altitude changes are automatically checked for conflicts before they even pop up on controllers’ screens. Computers look 20 minutes ahead for any planes potentially getting too close to each other. Flights are monitored by a system more accurate than radar, allowing them to be safely spaced closer together to add capacity and reduce delays.
And when flights enter U.S. airspace, pilots switch back to the old way of doing things.
The key, Nav Canada says, is its nongovernmental structure. Technology, critical to efficient airspace use these days, gets developed faster than if a government agency were trying to do it, officials say. Critics say slow technology development has been the FAA’s Achilles’ heel.
… Another innovation adopted around the world is electronic flight strips—critical information about each flight that gets changed on touch screens and passed from one controller to another electronically. Nav Canada has used them for more than 13 years. Many U.S. air controllers still use paper printouts placed in plastic carriers about the size of a 6-inch ruler that controllers scribble on.
For more on ATC, see here."

The End of Doom and Cost-Benefit Methodology

From Bryan Caplan of EconLog.
"Like all useful tools, cost-benefit analysis is flawed.  After surveying cost-benefit analyses of global warming and warming abatement, Ron Bailey's The End of Doom turns to methodological objections.  From his section on "How Much to Insure Against Low Probability Catastrophic Warming?":
How much should we pay to prevent the tiny probability of human civilization collapsing?  That is the question at the center of an esoteric debate over the application of cost-benefit analysis to man-mind climate change.  Harvard University economist Martin Weitzman raised the issue by putting forth a Dismal Theorem arguing that some consequences, however unlikely, would be so disastrous that cost-benefit analysis should not apply.

Weitzman contends that the uncertainties surrounding future man-made climate change are so great that there is some nonzero probability that total catastrophe will strike.  Weitzman focuses on equilibrium climate sensitivity... As has been discussed, the IPCC Physical Science report finds that climate sensitivity is likely to be in the range of 1.5° to 4.5° C and very unlikely to be greater than 6°C.  But very unlikely is not impossible.

Weitzman spins out scenarios in which there could be a 5 percent chance that global average temperature rises by 10
°C (17° F) by 2200 and a 1 percent chance that it rises by 20°C (34°F)... Surely people should just throw out cost-benefit analysis and pay the necessary trillions to avert this dire possibility, right?

Then again, perhaps Weitzman is premature in declaring the death of cost-benefit analysis.  William Nordhaus certainly thinks so, and he has written a persuasive critique of Weitzman's dismal conclusions...  Weitzman's Dismal Theorem implies that the world would be willing to spend $10 trillion to prevent a one-in-100-billion chance of being hit by an asteroid...

Nordhaus also notes that catastrophic climate change is not the only thing we might worry about.  Other low-probability civilization-destroying risks include "biotechnology, strangelets, runaway computer systems, nuclear proliferation, rogue weeds and bugs, nanotechnology, emerging tropical diseases, alien invaders, asteroids, enslavement by advanced robots, and so on." 
Deja vu.  Bailey's Nordhaus digest continues:
Weitzman's analysis also assumes that humanity will not have the time to learn about any impending catastrophic impacts from global warming.  But midcourse corrections are possible with climate change...

At the end of his critique of Weitzman's Dismal Theorem, Nordhaus investigates what combination of factors would actually produce a real climate catastrophe.  He defines a catastrophic outcome as one in which world per capita consumption declines by at least 50 percent below current levels...

Nordhaus ran a number of scenarios through the Dynamic Integrated Climate-Economy (DICE) model... DICE would produce a catastrophic result only if temperature sensitivity was at 10° C, economic damage occurred rapidly at a tipping point of 3°C, and nobody took any action to prevent the catastrophic chain of events.  Interestingly, even when setting all of the physical and damage parameters to extreme values, humanity still had eighty years to cut emissions by 100 percent in order to avoid disaster.
Bailey closes with a spot-on challenge:
Why has no one ever applied a Dismal Theorem analysis to evaluate the nonzero probability that bad government policy will cause a civilization-wrecking catastrophe?
I fear climate activists will dismiss Bailey's challenge as a debating trick.  But I see no way around it."

Thursday, April 28, 2016

Wind Energy Industry Suffers Fuel Shortage in 2015

By William Yeatman of CEI.

"Wind energy can’t compete. Instead, it exists only by the grace of favorable politics. On the supply side, the industry enjoys the federal production tax credit, which awards tax equity to owners of wind power for each megawatt hour of generated electricity. On the demand side, the industry enjoys Soviet-style production quotas in 30 states that force ratepayers to use increasing amounts of wind power.

Yet even with all this political “wind” at its back, sometimes the industry nonetheless falls short—because nature won’t cooperate. According to James Osborne at Fuel Fix,

Last year might have been a banner year for wind turbine construction, but not for the wind itself.

According to new data from the U.S. Energy Information Administration, the amount of electricity generated from wind turbines grew by less than 10 million megawatt hours last year, the smallest increase since 2007.

In a report Thursday government analysts attributed the slow down to decreased wind speeds across the western half of the United States during the first six months of 2015.

“The same weather patterns resulted in stronger winds in the central part of the country, where wind generation growth in 2015 was most pronounced,” the report read.

The fall off came even as wind energy capacity grew by its highest level in three years, as more than 8,000 megawatts worth of new turbines were installed on the grid, according to EIA.

To recap: Due to the wind not blowing, there was a paradox for the wind energy industry in 2015 whereby capacity installment was historically high, while generation was historically low. By my back-of-the-envelope calculation, the new wind power capacity operated 13 percent of the time in 2015, which is hardly the hallmark of reliability.

The lesson is that wind, though free, can suffer supply shortages, just like gas and coal. Add this to the industry’s other drawbacks, including:
  • High capital costs;
  • high operations and maintenance costs for the turbine and the grid; 
  • it’s intermittent and therefore requires backup generation; and
  • it’s non-dispatchable.
In late 2015, I wrote on this blog:

The American Wind Energy Association, which serves as wind power’s top lobbying shop, released a report warning that the industry would face a “sharp decline” in 2016, if the Congress does not extend the wind production tax credit by the end of 2015.

Given the precarious state of wind power in late 2015, when AWEA claimed that the industry would implode without a single subsidy, I was surprised by a recent boast by AWEA chief Tom Kiernan regarding his industry’s competitive health. In mid-April, Kiernan told The Washington Post:

We’re at a point of maturity in the wind industry that people are seeing the value in what we’re bringing to them. These corporations are buying because it’s affordable and it’s clean … This is a good business proposition for them.

Kiernan’s comments bring to mind a couple questions. Why, if wind power is a “good business proposition,” does it need a subsidy? How can wind power be a “good business proposition” if the industry would fall apart absent a single subsidy?"

Don Boudreaux's Latest On Free Trade

See Some links. Excerpts:
"John Tamny gets to the heart of Donald Trump’s (and Bernie Sanders’s – and their fans’) unmitigated ignorance about international trade.  A slice:
Thanks to free trade within these fifty states, the companies that fail to best serve the needs of their customers don’t last very long. That trade is wholly free within the U.S. is precisely what attracts a great deal of job-creating domestic and foreign investment, simply because lousy business concepts are allowed to fail so that good businesses can quickly replace them. In short, it’s the constant destruction of jobs in the U.S. that enables the fast creation of much better ones.
Applied to the foreign competition that Trump decries, the happy fact that the U.S. is largely open to foreign production is similarly what makes the U.S. such an attractive destination for investment. Figure foreign competition, just like domestic, forces the very economic evolution that appeals so much to investors. Absent foreign trade, the U.S. economy would be quite a bit more depressed as a result of many more proverbial Blockbusters existing at the expense of more capable replacements like Netflix.
So often we hear about Americans “battered” by “foreign trade,” but the certain truth about imports – whether from across the street or from around the world – is that they’re the surest sign of a growing economy. As logic dictates, the fact that so many businesses – domestic and foreign – compete to serve U.S. consumers is the best indicator that open trade has been brilliant for the American people. If it weren’t, we Americans wouldn’t have the world’s talented so aggressively working to serve our needs.
Speaking of trade, in my latest column in the Pittsburgh Tribune-Review I attempt to tackle yet another misunderstanding about trade.  A slice:
“Fair trade” is code for “unfree trade.”
Of course, no one endorses trade that is genuinely unfair. The crucial questions, however, are just what is unfair trade and what is the best way to deal with it. Protectionists in America want you to think that any imports whose producers receive any assistance at all from foreign governments are unfair. They want you also to uncritically accept their assumption that the best way to deal with unfair trade is for Uncle Sam to raise tariffs — that is, taxes — on American consumers.
Never mind the hypocrisy at work when Uncle Sam — itself a major subsidizer of many U.S. exporters, such as Boeing and Dow Chemical — uses charges of “unfair trade” as an excuse to punitively tax Americans who purchase imports.
I can pick two or three nits with Alan Blinder’s recent essay in the Wall Street Journal about trade, but overall it’s very good.  A slice:
Trade is more about efficiency—and hence wages—than about the number of jobs. You probably don’t sew your own clothes or grow your own food. Instead, you buy these things from others, using the wages you earn doing something you do better. Imagine how much lower your standard of living would be if you had to sew your own clothes, grow your own food . . . and a thousand other things.
The case for international trade is no different. It’s not mainly about creating or destroying jobs. It’s about using labor more efficiently, which is one key to higher wages."

Why California’s ‘one-size-fits-none’ $15 an hour statewide minimum wage is doomed to fail

From Mark Perry.
"I wrote earlier this month on CD about one of the potentially fatal flaws of California’s recently enacted $15 an hour statewide minimum wage: a one-size-fits-all uniform $15 minimum wage for the entire state of California is really a “one-size-fits-none” minimum wage, given the huge variations in the cost of living around the country’s most populous state. While a high-wage, high cost-of-living city like San Francisco might be able to absorb a $15 minimum wage without experiencing significant negative employment effects, that same $15 wage could inflict serious economic damages and result in job losses for many of the state’s 500 cities that are in low-wage, low cost-of-living areas.


To help understand how the “one-size-fits-all” approach of a $15 an hour state minimum wage will have a disproportionately adverse impact on low-cost communities in California, the table above displays the “living hourly wages” for California’s 26 metropolitan statistical areas (MSAs), based on data from MIT’s Living Wage Calculator for the year 2014 (most recent year available). According to the MIT website, the cost-of-living adjusted living wages displayed above are the “hourly rates that individuals must earn [in a given MSA] to support their family [and cover basic family expenses], if they are the sole provider and are working full-time (2,080 hours per year).” Living wages for adult workers with 1 to 3 children are also displayed in the table above.

The living wage data shown above reveal huge differences in the cost-of-living between low-cost California MSAs like Yuba City, El Centro, Chico, and Merced (living wages are below $10 an hour) and high-cost cities like San Francisco and San Jose, where the cost-of-living adjusted living wage is 38% higher. If $15 an hour is an appropriate minimum wage for San Francisco, it should be less than $11 an hour in MSAs like Yuba City and El Centro, where the cost-of-living is significantly lower. It’s also important to note that all four of those low-cost MSAs had jobless rates above the state average in February, and three of them (all except Chico) had double-digit unemployment rates in February, with El Centro having the distinction of once again being the MSA with the highest jobless rate in the entire country at 18.6%. Therefore, many MSAs in California (like Yuba City, El Centro, Chico and Merced) not only have costs-of-living way below the state average, but they also have jobless rates that are way above the state average, and it’s those MSAs that will be adversely impacted by the imposition of a uniform state minimum wage of $15 an hour.

Bottom Line: As I concluded before, even supporters of a $15 an hour minimum wage in California would have to concede that a one-size-fits-all, uniform $15 an hour state minimum wage, without any adjustments for the significant differences in the cost-of-living across the Golden State, will disproportionately affect unskilled and limited-experience workers in low-cost MSAs like Yuba City and El Centro, and also in hundreds of other low-cost, low-wage cities (that are not part of an MSA) throughout the state. In other words, a one-size-fits-all minimum wage for all 500 cities in California is really a “one-size-fits-none” minimum wage, and will inflict very serious and long-lasting economic damage in most parts of the state outside of the large metro areas on the coast (LA, San Francisco, and San Diego).

The clumsy, top-down, ham-handed approach of government imposed wage controls like a $15 an hour statewide minimum wage in California, without allowing for any adjustments to accommodate the significant differences in cost-of-living and labor market conditions, is one of the main reasons the Golden State’s risky experiment with a $15 wage will likely backfire and be “not-so-golden” in practice. In contrast, one of the significant advantages of market-determined wages is that they can naturally and automatically adjust to the market conditions of local areas. For example, we might expect that the starting wages for national chains like McDonald’s (1,165 stores in California) and Starbucks (2,000 locations) would vary around the state of California based on local labor market conditions and the local cost-of-living, and would be higher in San Francisco than in cities like El Centro. But a government mandated price control like the $15 an hour uniform minimum wage in California that outlaws adjustments to fit the customized needs of the 500 individual city-level labor markets in the state is a public policy destined to fail – especially in the state’s low-wage, low cost-of-living cities with high jobless rates that are the most vulnerable to the “one-size-fits-none” awkwardness and clumsiness that is the $15 statewide minimum wage in California."

Wednesday, April 27, 2016

President Obama’s persistent ’77-cent’ claim on the wage gap gets a new Pinocchio rating

By Glenn Kessler of The Washington Post.
"“Today, the average full-time working woman earns just 77 cents for every dollar a man earns…in 2014, that’s an embarrassment. It is wrong.”
–President Obama, remarks on equal pay for equal work, April 8, 2014

In 2012, during another election season, The Fact Checker took a deep dive in the statistics behind this factoid and found it wanting. We awarded the president only a Pinoochio, largely because he is citing Census Bureau data, but have wondered since then if we were too generous.

We also called out the president when he used this fact in the 2013 State of the Union address. And in the 2014 State of the Union address. And yet he keeps using it, as do many other Democrats. So now it’s time for a reassessment.

The Truth Teller video above also goes through the details.

The Facts

Few experts dispute that there is a wage gap, but differences in the life choices of men and women — such as women tending to leave the workforce when they have children — make it difficult to make simple comparisons.

The president is relying on a simple calculation from the Census Bureau: a ratio of the difference between women’s median earnings and men’s median earnings. (The median is the middle value, with an equal number of full-time workers earning more and earning less.) That leaves a pay gap of 23 cents.

But the Labor Department’s Bureau of Labor Statistics shows that the gap is 19 cents when looking at weekly wages. The gap is even smaller when you look at hourly wages — it is 14 cents — but then not every wage earner is paid on an hourly basis, so that statistic excludes salaried workers.
It is worth noting that the gap can go in the other direction as well. Heidi Hartman, president of the Institute for Women’s Policy Research, noted that the gap widens to 27.6 cents if part-time workers were included. She also said that in a 2004 survey, IWPR calculated that across 15 years, prime age women earned just 38 percent of what prime age men earned–an apparent wage gap of 62 percent.

Since women in general work fewer hours than men in a year, the statistics used by the White House may be less reliable for examining the key focus of the proposed Paycheck Fairness Act — wage discrimination. For instance, annual wage figures do not take into account the fact that teachers — many of whom are women — have a primary job that fills nine months out of the year.  The weekly wage is more of an apples-to-apples comparison, but it does not include as many income categories. June O’Neill, a former director of the Congressional Budget Office who has been a critic of the 77-cent statistic, has noted that the wage gap is affected by a number of factors, including that the average woman has less work experience than the average man and that more of the weeks worked by women are part-time rather than full-time. Women also tend to leave the work force for periods in order to raise children, seek jobs that may have more flexible hours but lower pay and choose careers that tend to have lower pay.

Indeed, BLS data show that women who do not get married have virtually no wage gap; they earn 96 cents for every dollar a man makes.

In 2011, economists at the Federal Reserve Bank of St. Louis surveyed economic literature and concluded that “research suggests that the actual gender wage gap (when female workers are compared with male workers who have similar characteristics) is much lower than the raw wage gap.” They noted that women may prefer to accept jobs with lower wages but greater benefits (more flexible parental leave) so excluding such fringe benefits from the calculations will exaggerate the wage disparity. They also cited one survey, prepared for the Labor Department during the George W. Bush administration, which concluded that when such differences are accounted for, much of the hourly wage gap dwindled, to about 5 cents on the dollar.

A 2013 article in the Daily Beast, citing a Georgetown University survey on the economic value of different college majors, showed how nine of the 10 most remunerative majors were dominated by men:
1.   Petroleum Engineering: 87% male
2.   Pharmacy Pharmaceutical Sciences and Administration: 48% male
3.   Mathematics and Computer Science: 67% male
4.   Aerospace Engineering: 88% male
5.   Chemical Engineering: 72% male
6.   Electrical Engineering: 89% male
7.   Naval Architecture and Marine Engineering: 97% male
8.   Mechanical Engineering: 90% male
9.   Metallurgical Engineering: 83% male
10. Mining and Mineral Engineering: 90% male
Meanwhile, nine of the 10 least remunerative majors were dominated by women:
1.  Counseling Psychology: 74% female
2.  Early Childhood Education: 97% female
3.  Theology and Religious Vocations: 34% female
4.  Human Services and Community Organization: 81% female
5.  Social Work: 88% female
6.  Drama and Theater Arts: 60% female
7.   Studio Arts: 66% female
8.   Communication Disorders Sciences and Services: 94% female
9.   Visual and Performing Arts: 77% female
10. Health and Medical Preparatory Programs: 55% female
We do not want to suggest there is no pay gap. A report by the American Association of University Women found that, after accounting for a variety of factors, including college major and occupation, there was an unexplained seven percent gap one year after graduation. The gap then grew to 12 percent after ten years. But that’s still nearly half the gap touted by the president.

The White House discovered that broad calculations of wages can yield unsatisfactory results. McClatchy newspapers did the math and reported that when the same standards that generated the 77-cent figure were applied to White House salaries, women overall at the White House make 91 cents for every dollar men make. White House spokesman Jay Carney protested that the review “looked at the aggregate of everyone on staff, and that includes from the most junior levels to the most senior.” But that’s exactly what the Census Department does.

Betsey Stevenson, a member of the White House Council of Economic Advisers, acknowledged to reporters that the 77-cent figure did not reflect equal pay for equal work. “Seventy-seven cents captures the annual earnings of full-time, full-year women divided by the annual earnings of full-time, full-year men,” she said. “There are a lot of things that go into that 77-cents figure, there are a lot of things that contribute and no one’s trying to say that it’s all about discrimination, but I don’t think there’s a better figure.”

Carney noted that the White House wage gap was narrower than the national average, but the White House actually lags the District average calculated by the BLS: 95 cents.

The Pinocchio Test

From a political perspective, the Census Bureau’s 77-cent figure is golden. Unless women stop getting married and having children, and start abandoning careers in childhood education for naval architecture, this huge gap in wages will almost certainly persist. Democrats thus can keep bringing it up every two years.

There appears to be some sort of wage gap and closing it is certainly a worthy goal. But it’s a bit rich for the president to repeatedly cite this statistic as an “embarrassment.” (His line in the April 8 speech was almost word for word what he said in the 2014 State of the Union address.) The president must begin to acknowledge that “77 cents” does not begin to capture what is actually happening in the work force and society.

Thus we are boosting the rating on this factoid to Two Pinocchios. We were tempted to go one step further to Three Pinocchios, but the president is relying on an official government statistic–and there are problems and limitations with the other calculations as well.

(Update, April 12: In his weekly radio address, President Obama highlighted the equal pay issue but dropped any mention of the “77-cent” figure. This is a good start and we hope other Democrats follow his example.)

Two Pinocchios"

NBC Spreads Debunked ‘Facts’ On ‘Equal Pay Day’

By Kristine Marsh of News Busters.
"NBC’s Nightly News Tuesday did itself a disservice by spreading “facts” about pay inequality that have been debunked for years. Anchor Lester Holt opened the program by trotting out the tired old “Women make seventy-nine cents for every dollar a man makes” line before delving into the report, which relies on celebrities and disenfranchised civilians repeating faulty statistics as “proof” that the wage gap is a legitimate and serious issue.

Holt led into correspondent Andrea Mitchell’s report by heralding the “major unveiling” as President Obama dedicated a new national monument to “a battle generations have fought for women’s equality.” Holt claimed, “On average, women in the U.S. make 21% less than men,” before handing the report off to Andrea Mitchell.

Mitchell opened by interviewing a woman who worked in the education field, coming to, as Mitchell put it, “the stunning realization” that she made $12,000 less than her male colleague. Mitchell repeated the erroneous statistic that women make $0.79 for every dollar a man makes before playing clips of the U.S. women’s soccer team and actress Patricia Arquette advocating for “equal pay.”

NBC then played a clip from a MSNBC segment earlier today of Mitchell talking to Arquette, who urged, “Concrete changes have to be made. Women can’t wait any longer.”

While NBC irresponsibly spread a message of activism rather than actual journalism, on Fox News Channel’s Special Report with Brett Baier, a much more fact-based approach to “equal pay day” was underway.

Guest Sabrina Schaeffer from the Independent Women’s Forum blasted President Obama for repeating those debunked statistics stating, “Saying it over and over again simply does not make it true.”

Host Shannon Bream brought up that various media outlets have debunked these statistics as false or misconstrued, yet the President and other media (like NBC) keep repeating it, wishing it was. Bream explains:
BREAM: The Washington Post's fact checker called similar statements by the President misleading and gave them a two Pinocchio rating, meaning “significant omissions and/or exaggerations.” The conflict comes when raw wage data from the Labor Department is lumped together and averaged without taking into account actual hours worked. Significant absences from the work force and that men overwhelmingly select the more dangerous fields which come with bigger paychecks. Statistics also show that nine of the ten most profitable are dominated by men while nine of the ten least profitable are dominated by women.
Schaeffer added in that it’s not just conservatives saying this.
SCHAEFFER: There are plenty of groups on the left as well who have double research and they have — you know, it’s their research has shown the same thing that when you control for any number of these variables, you have a much smaller wage gap."

Tuesday, April 26, 2016

The Cumulative Cost of Regulations

By Bentley Coffey, Patrick McLaughlin and Pietro Peretto of Mercatus.
"The impact of regulation on economic growth has been widely studied, but most research has focused on a narrow set of regulations, industries, or both. These studies typically rely on regulatory indexes that measure subsets of all regulation, on country-to-country comparisons, on short time spans, or on surveys in which experts report how regulated they believe their country or industry is. In order to better understand the cumulative cost of regulation, a comprehensive look at all regulations across many industries over a long period of time is imperative.

A new study for the Mercatus Center at George Mason University uses an economic model that examines regulation’s effect on firms’ investment choices. Using a 22-industry dataset that covers 1977 through 2012, the study finds that regulation—by distorting the investment choices that lead to innovation—has created a considerable drag on the economy, amounting to an average reduction in the annual growth rate of the US gross domestic product (GDP) of 0.8 percent.


Federal regulations have accumulated over many decades, piling up over time. When regulators add more rules to the pile, analysts often consider the likely benefits and compliance costs of the additional rules.

But regulations have a greater effect on the economy than analysis of a single rule in isolation can convey. The buildup of regulations over time leads to duplicative, obsolete, conflicting, and even contradictory rules, and the multiplicity of regulatory constraints complicates and distorts the decision-making processes of firms operating in the economy. Firms respond to both individual regulations and regulatory accumulation by altering their plans for research and development, for expansion, and for updating equipment and processes. Because of the important role innovation and productivity growth play in an economy, these distortions have consequences for the growth of the economy in the long run.


Economic growth in the United States has, on average, been slowed by 0.8 percent per year since 1980 owing to the cumulative effects of regulation:
  • If regulation had been held constant at levels observed in 1980, the US economy would have been about 25 percent larger than it actually was as of 2012.
  • This means that in 2012, the economy was $4 trillion smaller than it would have been in the absence of regulatory growth since 1980.
  • This amounts to a loss of approximately $13,000 per capita, a significant amount of money for most American workers.


The study uses a panel of 22 industries observed annually between 1977 and 2012. The authors combine data from the Bureau of Economic Analysis and the Census Bureau to measure these industries, with novel metrics of regulation by industry provided by RegData 2.2, a comprehensive, text-based quantification of industry-specific regulations in the Code of Federal Regulations. While some studies look at only one data series (such as the total quantity of regulations in the country) or attempt to compare different countries, this study’s use of 22 industries and the regulations affecting each industry provides a richer and more complete understanding of regulation’s effect on economic growth.


Endogenous growth theory builds on the idea that economic growth is primarily dependent on decisions made by actors in the economy—firms and individuals—rather than on external factors.
  • Economic growth is dependent on investment. Economic growth in a particular industry is determined by investment in knowledge creation, such as research and development, and the way that such investment leads to innovation and increases in productivity. This means that regulatory interventions that affect investment choices have a greater effect on the economy than the simple sum of static costs associated with regulatory compliance.
  • Regulations have cumulative effects. A key insight of endogenous growth models in general is that the effect of government intervention on economic growth is not simply the sum of static costs associated with individual interventions—there are dynamic implications. The accumulation of regulation over time leads to greater and greater distortion of investment choices. Moreover, the investment choices of previous years affect growth in future years because knowledge that is not created cannot be implemented next year and the years after to be more productive.
The study develops a multisector endogenous growth model that permits a counterfactual experiment: What would have happened if federal regulation had been “frozen” at the levels observed in 1980? The model accommodates industry-specific variation in how regulation affects investment and growth, while specifying the determinants and relationships needed to estimate the long-run cost of the regulation for the economy overall.


While static analysis of individual regulations sometimes predicts beneficial effects for society, policymakers should consider the results of this study not only when creating new regulations, but also when considering reform of the regulatory process itself. By altering investment decisions and disrupting the innovation that comes from investment in knowledge creation, regulations have a cumulative and detrimental effect on economic growth—and, over time, have a real impact on American families and workers."

Women’s Soccer Plays a Phony Pay Game

Complaints about an alleged pay gap are a public-relations ploy to get a sweetened union contract. 

By Allysia Finley of The Wall Street Journal.
"Earlier this month, U.S. women’s national soccer team midfielder Megan Rapinoe appeared with Hillary Clinton in New York City at an “Equal Pay Day” event. The U.S. women’s team has won three World Cups and four Olympic gold medals since 1990. The men? They failed to qualify for this year’s Olympics and haven’t gotten past the quarterfinals in the World Cup since 1930. “Yet somehow,” Mrs. Clinton said, “the men are making hundreds of thousands of dollars more than our women.”

This would be outrageous if it were true. But it isn’t. Democrats are using the equal-pay issue to increase the turnout of female voters in the fall. The U.S. women’s soccer players have a different interest: Landing a better labor contract. The women’s national team and the U.S. Soccer Federation have been tangled in a labor dispute, and the players are trying to put pressure on their employer with a yellow card for gender discrimination.

In December the players-union lawyer sought to invalidate a 2013 memorandum of understanding that extended their prior collective-bargaining agreement, which expired in December 2012, through the end of this year. The action appeared to be preparing the way for a strike, which is prohibited by the agreement. In February the Federation sued the union to enforce the contract.

The risk of a strike before the Olympics in Rio de Janeiro this summer increases the women’s negotiating leverage. The union hasn’t publicly articulated its demands, but players last year complained bitterly about often having to play—as the men’s team rarely does—on artificial turf, which can be less forgiving than natural grass. Then there’s the dubious equal-pay matter.

Last month, five top women’s players filed a complaint with the Equal Employment Opportunity Commission alleging gender discrimination. Players on the women’s team, they contend, earn as little as 40% of what their male counterparts are paid, despite having generated more revenues last year.
“We continue to be told we should be grateful just to have the opportunity to play professional soccer, and to get paid for doing it,” goalie Hope Solo said on NBC’s “Today” show. “In this day and age, it’s about equality. It’s about equal rights, it’s about equal pay.”

But data released last week by the U.S. Soccer Federation show that the top women’s players make nearly as much as the highest-paid men’s players. Since 2008, six national-team men and six women have earned more than $1 million from the Federation. And according to ESPN, 14 of the 25 highest-earning national-team players over the past four years have been women, whose compensation averaged $695,269. That’s 2.2% below the average for men. Women also receive benefits that men don’t, including maternity leave and severance pay if they get cut from the team. Women get paid if they’re sidelined with an injury; men don’t.

Women on the U.S. national soccer teams aren’t paid less than men. They’re paid differently because the collective-bargaining agreements they have negotiated emphasize income- and job-security. Women players earn annual salaries of $72,000; the men get paid by how many games they play. The men’s roster is more fluid, and the head coach can call players to camp for one game.

Nearly 50 men’s players appeared in games for the U.S. national squad last year, but only three played more than 13 games. The women’s team fields about half as many players.

Players on the women’s team receive smaller bonuses than the men: Women are awarded $1,350 for each win, while the men get $5,000 for each game they’re on the national roster and are paid $6,250-$17,625 for each victory, depending on their opponent’s ranking.

Another significant disparity: The U.S. women’s team received $2 million from the Fédération Internationale de Football Association (FIFA) for winning the World Cup last year, while the men’s team landed $9 million merely for advancing to the round of 16.

How could that be? Simple: Men’s soccer is much more popular than women’s soccer world-wide. Historically, men’s soccer has also been a bigger draw in the U.S. Between 2011 and 2015, men played in 53 home games with attendance averaging 35,536. During that period, women played 50 games in the U.S., drawing an average attendance of 16,559. In 2014, when the men’s team was in the World Cup competition, their revenues were roughly four times that of the women’s team. Last year, when the women’s team was competing for the World Cup, their revenues ($23.5 million) beat the men’s team’s ($21 million) for the first time.

Most men’s soccer players earn more from their club teams than women do from the embryonic National Women’s Soccer League, which the Federation launched in 2012 to provide female players who don’t make the national team with a venue to showcase their talent. But the Federation isn’t responsible for how professional soccer leagues pay their players.

The players on the women’s team might not have a persuasive legal case about unequal pay, but that hasn’t stopped them from going public with their complaints. Maybe they’re hoping Hillary Clinton will work the refs."

Monday, April 25, 2016

The exoneration of dietary fat

From Matt Ridley.

"For both obesity and heart disease, saturated fats are not the problem
I have published two articles this week on the crumbing of the dogma that fat is bad for you. This was in the Times:

Britain’s obesity tsar, Susan Jebb, says that it is not fair to blame fat people for their failure to lose weight. Genetically predisposed, many people cannot realistically lose weight by eating less, especially when the food industry tempts them with snacks. Meanwhile, George Osborne is slapping a tax on sugar to tackle obesity.

The new obsession with sugar definitely makes more sense than the low-fat sermons we have heard for decades. And the prevailing idea in the public-health industry that you get fat simply by eating more calories than you burn is misleading to say the least. While of course that’s true, it says nothing about what causes appetite to exceed need by the tiny amount each day that can turn you obese.
The crucial thing is satiety. If some foods make you feel full quicker or for longer, then they will prevent you over-eating. Moreover it is easily possible, indeed likely, that people are less satiated when they eat carbohydrate than fat.

As I argued in these pages two years ago in respect of heart disease, scientists are performing a screeching U-turn on dietary advice, away from demonising fats and towards demonising carbohydrates. In the case of obesity, they cannot quite bring themselves to admit it. They want to tell us not to eat sugars, yet they won’t exonerate fat.

This is typical in science. When paradigms break, you rarely hear scientists say: “We were wrong.” They tiptoe away from their previous position. Yet this has been a costly mistake. “Getting the wrong answer on such a huge and tragic scale borders on the inexcusable,” the writer and diet critic Gary Taubes has written.

Taubes and the investigative journalist Nina Teicholz have catalogued not just the emptiness of the evidence linking dietary fat with health problems, but the politicking and jealousy that has kept heretic researchers off the key committees in the world of dietary advice. They are still treated as pariahs, even as more and more scientists quietly adopt their position. This month, Teicholz was disinvited at the insistence of fellow speakers from a slot speaking at America’s National Food Policy conference. They don’t want her argument heard that too many scientific findings are being systematically ignored in the US Dietary Guidelines, which still recommend replacing fat with carbohydrates.

In the science behind food advice it is mad simply to put both sugar and fat in the “bad” category. Telling people to eat less sugar and refined carbohydrates, while still telling them to eat less fat, is not going to work. You cannot eat less of both without eating too much protein, which is not affordable, practical — or healthy. The shelves of supermarkets are still groaning with low-fat foods; the websites of diet preachers are still calling for people to eat less saturated fat as well as less sugar. Fast food, so hated by the kale-and-quinoa crowd, is often described as full of “fat and sugar”.

Yet the science is now crystal clear that eating lots of fat is actually less likely to make you fat than eating lots of carbohydrates. Around 1980 much of Britain, following America, started to cut saturated fat out of the diet — and a few years later, obesity, far from declining, suddenly began increasing. There is a good physiological reason for this. The pancreas reacts to high levels of glucose in the blood by secreting more insulin to regulate the blood glucose level. Insulin encourages the body to burn sugar rather than fat for energy. But insulin also orders fat cells to accumulate fat (made from sugar in the liver) for later use. So the more sugar you eat, the more fat gets laid down and the less gets burnt off.

Eventually, having too much fat reduces the sensitivity of the body to insulin. The body reacts by making more insulin. High insulin levels for longer mean more fat being laid down and eventually type 2 diabetes. As Gary Taubes has argued, we knew all this in the 1930s — or at least German-speaking scientists did — and saw obesity as a consequence of hormonal defects. The idea that it was just about eating too much came later. Yet to this day the World Health Organisation opines: “The fundamental cause of obesity and overweight is an energy imbalance between calories consumed and calories expended.”

We probably know enough to justify discouraging the consumption of sugar through the tax system. That should be accompanied by re-encouraging fat eating. We must also take care not to declare premature certainty about sugar. A bit of humility would not come amiss.

Let’s face it: we do not know for certain why some people are obese and others not. The easy availability of plentiful food, especially sugars, is part of the story, as is less exercise. Yet we all know people who stay thin whatever they eat or do. The rise of high-fructose corn syrup as a sweetener coincides well with the upsurge of obesity in the 1980s, and fructose is digested in the liver, where it possibly interferes with insulin sensitivity even more than glucose. Do we know for sure that fructose is especially bad? No.

There could be all sorts of reasons why some people are more susceptible to obesity than others. Consider an extraordinary experiment conducted at Washington University in St Louis a few years ago. A pair of genetically identical twins, one of whom was obese and one of was not, donated samples of their gut contents to some genetically clonal mice whose guts had been stripped of all bacteria. The mice that received the fat twin’s gut flora grew fatter than the ones that received the thin twin’s gut flora. Perhaps some people have a mixture of gut bacteria that alters their appetite or their insulin reactions, and perhaps something about our lifestyles or the medicines we take has altered our gut flora.

Whether obesity is caused by unbalanced gut flora, or susceptible genetics, or the effects of fructose, or something else, there is every chance that Susan Jebb is right that we should not blame lack of willpower. Meanwhile it is worth remembering that obesity is nothing like as bad as it was forecast to be by now, and is not currently getting worse. The prevalence of obesity in Britain doubled in the 1990s. For the past ten years, in defiance of predictions, it has remained about the same — roughly a quarter of adults are obese."

Will no one take on the trade cowards?

By Jennifer Rubin in The Washington Post.
"Among the many discouraging aspects of the 2016 presidential race is the remaining candidates’ unanimous support for trade protectionism. There are those who know better but choose to pander to the crowd. There are those who are ignorant and insist on long-discredited arguments. It’s worse than climate-change denial, and it is bipartisan.

Alan S. Blinder, former vice chairman of the Federal Reserve and now a professor at Princeton, recites — in simple terms that even Donald Trump could grasp — some basic facts about trade. These are not opinions or matter of ideology; they are truisms about which economists regardless of ideological bent can agree. Blinder recaps: Capitalism, not trade, is responsible for job-churn (“Every month roughly five million new jobs are created in the U.S. and almost that many are destroyed, leaving a small net increment”); trade is a counterweight to wage stagnation (“It’s not mainly about creating or destroying jobs. It’s about using labor more efficiently, which is one key to higher wages”); and trade imbalances are both inevitable for the nation with a reserve currency and unimportant. As to the latter, he explains:
A trade deficit means that foreigners send us more goods and services than we send them. To balance the books, they get our IOUs, which means they wind up holding paper—U.S. Treasury bills, corporate bonds or other private debt instruments. That doesn’t sound so terrible for us, does it?
One exceptional country—the U.S.—is the source of the world’s major international reserve currency, the U.S. dollar. Since ever-expanding world commerce requires ever more dollars, the U.S. must run trade deficits regularly. That’s sometimes called our “exorbitant privilege,” since we get to import more than we export.
The upshot is simple: “America’s chronic trade deficits stem from the dollar’s international role and from Americans’ decisions not to save much, not from trade deals.” As for the policy implications, “Trade deficits are not a major cause of either job losses or job gains. But some people do lose their jobs from shifting trade patterns; and the government should do more to help them. Importantly, trade makes American workers more productive and, presumably, better paid.”

What is even more clear is that protectionism does not work. History teaches us that it almost always provokes political conflict and economic malaise. The “cure” for what amounts to a psychosomatic illness is a prescription for recession and international conflict."

Sunday, April 24, 2016

Give Job Seekers a Break: Get Government Out of the Licensing Business

By Trey Kovacs of CEI.
"Public policy easing union organizing is not an economic cure-all, and really wouldn’t help at all—no matter how many times union-backed politicians say so (see my post from yesterday).
But there are steps that government can take to liberalize labor markets that would spur economic growth, one reform that even President Obama is on board with: ease occupational licensing requirements.

Just recently, the Bureau of Labor Statistics released new data on occupational licensing. To no one’s surprise, job holders with a certificate or license earned more. This reason is most likely two-fold and does not take away from detractors’ arguments that rigorous licensing requirements should be loosened as to make labor markets more dynamic.

According to BLS data, in 2015, of people 25 and older with a license or certificate, nearly 40 percent also had a college degree. So, one reason why workers with a license earn more is because they are in high paying professions that require high levels of education like “health care practitioners and technical occupations” (72.2 held a license) or “legal occupations” (63.6 held a license).

But more troublesome is that many individuals with a license or professional certificate earn more because of what is known as rent-seeking. Basically, the license acts as a barrier to competition and exists to exclusively benefit the politically connected workers who have already obtained them.

Unsurprisingly, young people with less education trying to join the workforce are harmed most by occupational requirements. As Ben Casselman at FiveThirtyEight notes, licensing requirements have a disparate impact on young people: “The unemployment rate for adults ag​es 18 to 35 with neither a license nor a college degree was 9.9 percent in 2015; for those with a license (but still no degree), it was 5.2 percent.”

But young people are not only one’s harmed by occupational licensing requirements, “Workers over 45 consistently face longer spells of unemployment when they lose jobs compared with younger workers; unemployment lasts more than 40 percent longer for those without a license.”

Yes, most would like our doctors to go through training and receive credentials to practice, but over the past several decades the number of professions that require occupational licensing has exploded.

An Obama administration report found that “[a]round one in four workers are now required to have a license to do their jobs, up from one in 20 in the 1950s.” Most of the growth in licensing requirements is simply that more professions, which have existed for decades, now require it.

For example, it would be hard to imagine in the 1950’s any government requiring landscapers to obtain a license to mow lawns and spread mulch, but 10 states currently do. Louisiana inexplicably requires florist licenses.

There are many ways to improve labor market dynamism, but one reform that both sides seem to agree on is ridding many professions of government mandated license requirements. While some jobs may require credentials due to health and safety concerns, private regulatory boards or trade associations are many times more capable of setting and enforcing standards than government.

However, in most professions there is no health and safety concern, there is just government interference. Individuals should have a right to work and government should not require entrepreneurs to take years and spend resources on a license just to braid hair, sell flowers or take care of lawns."

Maze of FDA Regulations Slows Medical Innovation to a Crawl

By Richard Williams of Mercatus.
"New technologies are poised to launch a health care revolution, improving care and cutting costs. Unfortunately, an obsolete regulatory framework for medical devices threatens to slow or derail important components of that revolution. A mid-1970s law requires virtually every medical device—and improvements to existing devices—to endure a slow, expensive, uncertain approval process, ill-suited to 21st-century technology. The Food and Drug Administration (FDA), which grants such approval, has an aging structure and culture that adds extra layers of discouragement to would-be innovators. 

A “medical device” is essentially anything (other than a drug) that is used to “diagnose, prevent, or treat” diseases or other medical conditions. Even an electric toothbrush is a medical device, so an innovator wishing to improve the product may face a costly, drawn-out process to get it to market. The same potentially goes for prosthetic hands now produced on 3-D printers and assembled by elementary school students for their classmates. Some of the most promising medical devices include a software component, so developers face uncertainty over whether, say, a particular software update requires FDA pre-approval. As with drugs, devices and alterations to those devices must be cleared by the FDA before they reach patients. This process can be confusing, time-consuming, expensive, frustrating, unpredictable, and inefficient.

Some products take years to make it through the FDA’s maze. A recent report noted that three devices submitted to the FDA in 1998 did not gain approval until 2007. For all products, the fees and testing are expensive. It costs on average $24 million to deal with the FDA’s requirements. That’s 75 percent of the overall average cost of developing and getting a medical device to market.
But the real cost falls on patients. For some, the devices arrive late or, in the worst cases, too late. And we will never know which health-improving or life-saving technologies were left on scratch pads because the time and expense discouraged entrepreneurs from developing them in the first place.

The FDA’s incentives bias its behavior toward long deliberation and excessive caution. There are better ways to regulate medical devices, and some are described in my recent paper, coauthored by Robert Graboyes and Adam Thierer, “US Medical Devices: Choices and Consequences.” In particular, the European Union (EU) assigns the task of certifying medical devices to “notified bodies”—private competing entities somewhat resembling Underwriters Laboratories. Like the FDA, the EU’s notified bodies have incentives that drive them to caution. But unlike the FDA, competition among the European entities discourages them from heel-dragging and extreme risk-aversion. As a result, Europe approves devices more rapidly and less expensively without sacrificing the safety and efficacy that the FDA delivers.

In the United States, such a system would complement the massive information highways that give patients and physicians more data than ever before on the medical devices that will ease their suffering and lengthen their lives."

From Coke to Coors: A Field Study of a Fat Tax and its Unintended Consequences

Click here to see the abstract.

"Brian Wansink

Cornell University

Andrew S. Hanks

The Ohio State University

John Cawley

Cornell University - College of Human Ecology, Department of Policy Analysis & Management (PAM); Cornell University - College of Arts & Sciences, Department of Economics; University of Sydney - School of Economics; National University of Ireland, Galway (NUIG) - J.E. Cairnes School of Business & Economics; NBER; IZA

David R. Just

Cornell University - Dyson School of Applied Economics and Management

July 29, 2014

Wansink, Brian, et al. "From Coke to Coors: a field study of a sugar-sweetened beverage tax and its unintended consequences." Available at SSRN 2079840 (2012).

Could taxation of calorie-dense foods such as soft drinks be used to reduce obesity? To address this question, a six-month field experiment was conducted in an American city of 62,000 where half of the 113 households recruited into the study faced a 10% tax on calorie-dense foods and beverages and half did not. The tax resulted in a short-term (1-month) decrease in soft drink purchases, but no decrease over a 3-month or 6-month period. Moreover, in beer-purchasing households, this tax led to increased purchases of beer. To behavior scholars, this underscores the importance of investigating unexpected substitutions. To public health officials and policy makers, this presents an important empirical result and more generally points toward wide ranging contributions that marketing scholarship can make in their decisions."

Saturday, April 23, 2016

UC Berkeley Touts $15 Minimum Wage Law, Then Fires Hundreds Of Workers After It Passes

From Investor's Business Daily.
"Labor Markets: Hundreds of employees at the University of California at Berkeley are getting schooled in basic economics, as the $15 minimum wage just cost them their jobs. Too bad liberal elites “fighting for $15” don’t get it.

A week after California Gov. Jerry Brown signed the state’s $15 minimum wage boost into law, UC Berkeley Chancellor Nicholas Dirks sent a memo to employees announcing that 500 jobs were getting cut.

Coincidence? Not really.

Last year, University of California President Janet Napolitano announced plans to boost its minimum wage to $15 at the start of next school year, independent of the state law. Since UC Berkeley was already in financial trouble — it ran a $109 million deficit last year and is projecting a deficit of $150 million this year — number crunchers there had to have factored in the higher mandated wage when making their layoff decisions.

Those workers might want to have a chat with the folks at UC Berkeley’s Center for Labor Research, who just days before Brown signed the wage-hike bill released a study touting the minimum wage as a boon to low-income household breadwinners.

After that report came out, Ken Jacobs, chairman of the UC Berkeley center, told the Los Angeles Times, “This is a very big deal for low-wage workers in California, for their families and for their children.”

It is a big deal, as well, to those soon to be out of work UC Berkeley workers.

But why is anyone surprised about jobs cuts following a wage hike? It’s one of the most basic laws of economics. Any high school kid taking Econ 101 can explain it:  If you raise the price of something, demand goes down.

Keep in mind, too, that a $15 minimum wage is more than twice the federal minimum wage today. And it would set the wage floor higher than it’s ever been. On an inflation-adjusted basis, the minimum wage peaked in 1968 at just over $10 an hour.

Even the liberal Mother Jones admits that a $15 minimum is “terra incognita” and “might not be entirely benign.”

What’s surprising, then, is that unions, liberals and others pushing the minimum wage hike have managed to convince the public that this law somehow doesn’t apply to the labor market, and so succeeded in getting $15 laws in California, New York and Seattle. You can bet that either Bernie Sanders or Hillary Clinton will push $15 at the national level if either is elected.

Berkeley employees whose jobs are on the chopping block might want to educate these leaders about the perils of this idea.

NOTE: This editorial was updated to reflect the fact that the University of California had decided to raise its own minimum wage to $15 starting next school year, independent of the California law."